June 30 2012

Congress Votes to Freeze Student Loan Interest Rate

Vicki E. Alger

Congress voted to freeze Stafford loan interest rates at 3.4 percent for an additional year. Absent Congressional action, they would have returned to the 2007 rate of 6.8 percent. But experts note that this measure is a quick fix that does not make college more affordable.

Richard Vedder, director of the Center for College Affordability and Productivity and an economics professor at Ohio University said, “It makes political sense, but not economic sense.” According to the Associated Press:

The price of college tuition has skyrocketed in recent decades. Between 1982 and 2007, tuition and fees increased 439 percent while the median family income rose 147 percent, according to a report from the National Center for Public Policy and Higher Education. The price of in-state tuition at a public university has increased by more than 5 percent annually in the past 10 years. It jumped 15 percent between 2008 and 2010 alone.

The American Council on Education blames state funding cuts for those increases. But the Cato’s Institute’s Neal McCluskey uses ACE’s own figures to show that increasing federal aid helps subsidize inefficiency and increased college costs. (See also here, here, and here.)

At most this fix will save college students around $7 or $8 a month, possibly even $9 or $10—and expect a re-run of this Congressional saga next summer.

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